Is Indian economy on the road to recovery of capex cycle?

A high level of Capital Expenditure (capex) in a country is believed to be a good indicator of economic growth since it projects a high level of confidence in the growth story of a country. Indian economy had capex falling since 2011. Post 2014, the stability of government in the centre along with the trust in its ability to implement policies and do away with unscrupulous bureaucracy by digitizing most process brought cheer in India Inc. Indian business houses were looking forward to an upswing in fortunes and hoped to come out of the sluggish capex cycle. For the first time around in many years, corporate honchos believed that the government was in true spirit attempting to steer the country out of quandary by addressing their needs, inspiring the capital market to meet funding requirements and rationalizing the tax structure to induce a higher propensity to save.

These positive sentiments were showing signs of rising growth curve for the economy when the disruptions like demonetization and GST came in. Businesses were trying to get away with their pre GST stock before implementation of GST and post it they are trying to revamp the system to accommodate the new tax regime. These measures of GST and demonetization are good as long term measures but in the short run they are proving to be roadblocks. Corporate Capex has declined for 5 years in succession, according to CMIE’s data. Annual new projects announcements also saw a marginal decline in FY17. New project announcement by the private sector came down by 2% year on year. Historically, wherever one nation one rate has been introduced it had taken about a year or more for the economy to recover and get back into action. Experts hope a similar story for India as well.

To pump up the corporate sector, government should step in to boost those sectors that are showing green shoots, especially those falling in the services category. For example, the healthcare sector which is already growing at the rate of 11 % to 14% could be given a fillip by increasing government spending and getting more number of private players to invest to witness tremendous growth. Similarly, tourism which has lots of potential in our country has not been given its due. It could sprout into a good money making industry with due attention.Many sectors like IT which are witnessing slowdown due to use of automation, artificial intelligence and robotics, should attempt to reskill and restructure themselves to fit into the new age business model.

Aviation, food industry, renewable resources like sun and wind , fintech and data analytics are some of the other sectors that have potential to grow a lot.

Shereen Bhan had a very thought provoking discussion with Sangita Reddy, Executive Director at Apollo Hospitals Group, Manish Jain, MD, Head Commercial Banking – India at Standard Chartered, and CP Gurnani, CEO and MD at Tech Mahindra on the revival in the capex cycle and what we can do to kick start economic recovery and identify new growth sectors.

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